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Item 5. Market for Registrant’s Common Equity

2023-03-24 compared with 2022-03-28 · 261 added, 118 removed, 43 unchanged (90% of the section changed)

3 unchanged sentences

Market Information

Prior to the Closing Date, the Company’s publicly traded units, common stock and warrants were listed on The New York Stock Exchange (“NYSE”) under the symbols “YSACU,”

“YSAC,”

and “YSACW,”

respectively.

Upon the closing, the Company’s Class A Common Stock and warrants were listed on the NYSE American under the symbols “SKYH”

The Company’s Class A Common Stock and Public Warrants are listed on the NYSE American under the symbols “SKYH”

and “SKYH WS,”

respectively.

The Company’s publicly traded units automatically separated into their component securities upon the closing of the Business Combination, and as a result, no longer trade as a separate security and were delisted from NYSE. 

As of March 25, 2022, there were four holders of record of Class A Common Stock and three holders of record of Warrants.

Prior to the consummation of the Business Combination, YAC’s Units, YAC’s Class A Common Stock and YAC’s Public Warrants were listed on the NASDAQ Capital Market under the symbols “YSACU”, “YSAC”

and “YSACW,”

respectively.

Upon consummation of the Business Combination, YAC’s Units automatically separated into the component securities, YAC’s Class A Common Stock was reclassified as our Class A Common Stock and YAC’s Public Warrants were reclassified as our Public Warrants.

As of December 31, 2022, there were five holders of record of Class A Common Stock and three holders of record of Warrants.

However, because many of the shares of Class A Common Stock and the Warrants are held by brokers and other institutions on behalf of stockholders, the Company believes there are substantially more beneficial holders of Class A Common Stock and Warrants than record holders.

5 unchanged sentences

Securities Authorized for Issuance Under Equity Compensation Plans

The required information is incorporated by reference from our Proxy Statement to be filed with respect to our 2023 Annual Meeting of Stockholders.

Recent Sales of Unregistered Securities , Use of Proceeds from Registered Public Offering

Except as previously disclosed in our Quarterly Reports on Form 10-Q during 2021, we did not sell any securities that were not registered under the Securities Act during the period covered by this Annual Report on Form 10-K.

On January 25, 2022, in connection with the completion of the Business Combination and as contemplated by the Equity Purchase Agreement and the Subscription Agreements, the Company made the following issuances of unregistered securities, as further described in the disclosure set forth under the Introductory Note above:

4,500,000 shares of Class A common stock to Boston Omaha for aggregate consideration of $45.0 million;

5,500,000 shares of Class A common stock to BOC YAC Funding LLC upon conversion of series B preferred units in Sky for aggregate consideration of $55.0 million;

42,192,250 shares of Class B Common Stock to the Existing Sky Equityholders.

The Sky Common Units are redeemable for shares of Class A Common Stock at each Sky Common Unit holder’s election.

Up to 42,192,250 shares of Class A Common Stock are issuable upon the redemption of the Sky Common Units.

The Company issued the foregoing securities in transactions not involving an underwriter and not requiring registration under Section 5 of the Securities Act of 1933, as amended, in reliance on the exemption afforded by Section 4(a)(2) thereof.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

1 unchanged sentence

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, references in this section to the terms “

YAC, ”

Company, ”

refer to Yellowstone Acquisition Company prior to the Business Combination.

The term “

refers to Sky Harbour LLC.

The financial information included in this Management ’

s Discussion and Analysis of Financial Condition and Results of Operations is that of YAC prior to the Business Combination because the Business Combination was consummated after the period covered by the financial statements included in this Annual Report on Form  

Accordingly, the historical financial information included in this Annual Report on Form  

unless otherwise indicated or as the context otherwise requires, is that of YAC prior to the Business Combination.

The following discussion and analysis of the Company ’

2 unchanged sentences

of this Annual Report on Form 10-K.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that reflect our plans, estimates, and beliefs.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “

2 unchanged sentences

and elsewhere in this Annual Report on Form 10-K.

We are an aviation infrastructure development company building the first nationwide network of Home-Basing Solutions (“HBS”) for business aircraft.

We develop, lease and manage general aviation hangars across the United States, targeting airfields in markets with significant aircraft populations and high hangar demand.

Our HBS campuses feature exclusive private hangars and a full suite of dedicated services specifically designed for home-based aircraft. 

Overview and Background

We are an aviation infrastructure development company building the first nationwide network of HBS hangar campuses for business aircraft.

We develop, lease, and manage general aviation hangars across the United States, targeting airfields in markets with significant aircraft populations and high hangar demand.

Our HBS hangar campuses feature exclusive private hangars and a full suite of dedicated services specifically optimized for home-based, versus transient, aircraft.

The physical footprint of the U.S.

business aviation fleet grew by almost 28 million square feet in the ten years preceding the beginning of the COVID-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets.

As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require more square footage of hangar space and the pace of new hangar construction has lagged behind the demand.

The cumulative square footage of the business aircraft fleet in the United States increased 50% between 2010 and 2021.

Moreover, over that same period, there was a 70% increase in the square footage of larger private jets –

Moreover, over that same period, there was an 81% increase in the square footage of larger private jets –

those with greater than a 24-foot tail height.

The larger footprint aircraft impose stacking challenges and constraints in the traditional shared or community hangars operated by fixed-base operators (“FBO”).

The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage.

Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years. 

Our scalable business strategy addresses the increased imbalance between the supply and demand for private jet storage, including the lack of hangar facilities able to accommodate larger aircraft, by growing our portfolio of HBS campuses at key airports across the United States.

We target airports with excess demand for private hangar space, typically near metropolitan areas, which include both established and growing markets.

We intend to capitalize on the existing hangar supply constraints, particularly for high-end tenants.

We were a former blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.

We completed our initial public offering on October 26, 2020 and Business Combination on January 25, 2022.

We had no substantive operations prior to the completion of the Business Combination.

A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth almost $275 billion expected to be delivered between 2023 and 2032, further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft is almost $47 billion.

These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by FBOs. The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage.

Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years.

We believe our scalable, real estate-centric business model is uniquely optimized to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage.

We intend to capitalize on the existing hangar supply constraints at major U.S.

airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete.

We realize economies of scale in construction through a proprietary prototype hangar design replicated at HBS hangar campuses across the United States.

This allows for centralized procurement, straightforward permitting processes, efficient development processes, and the best hangar in business aviation.

Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows.

This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk.

For a more complete description of our operations, including our HBS hangar campus development projects, refer to Item 1 — Business .

Recent Developments

On October 27, 2022, we substantially completed the construction of our BNA Phase II development project.

The total construction costs incurred associated with the project were slightly less than our initial estimated construction costs. In connection with the substantial completion of our BNA HBS hangar campus, certain tenant leases associated with our constructed hangars commenced starting in November 2022.

On January 19, 2023, we amended our existing ground lease agreement with the Town of Addison, TX to include additional parcels of land that will effectively double the land available for development at our ADS HBS hangar campus project.

On February 1, 2023, we substantially completed the construction of our OPF Phase I development project.

In connection with the substantial completion of the OPF Phase I hangar campus, tenant leases for certain of our constructed hangars commenced starting in February 2023.

On March 22, 2023, we satisfied the requirements within the Series 2021 PABs indenture to fund construction costs associated with our ADS Phase I development project with proceeds received from our Series 2021 PABs.

Note 18 —

Subsequent Events —

Series 2021 PABs Scope Modification ”

in the Notes to Consolidated Financial Statements for additional information regarding the modification of the scope of our Series 2021 PABs.

The approval and exercise of such rights will allow approximately $26 million of proceeds to be used to fund the ADS Phase I development project, and is projected to improve our debt service coverage associated with the Series 2021 PABs.

Factors That May Influence Future Results of Operations

Our revenues are earned pursuant to the lease agreements we enter into with our tenants.

Our ability to expand through new ground leases and tenant leases at airports is integral to our long-term business strategy and requires that we identify and consummate suitable new ground leases or investment opportunities in real estate properties for our portfolio that meet our investment criteria and are compatible with our growth strategy.

Our ability to enter into new ground leases and tenant leases on favorable terms, or at all, may be adversely affected by a number of factors.

We believe that the business environment of the industry segments in which our tenants operate is generally positive for tenants.

However, our existing and potential tenants are subject to economic, regulatory and market conditions that may affect their level of operations and demand for hangar space, which could impact our results of operations.

Accordingly, we actively monitor certain key factors, including changes in those factors (fuel prices, new aircraft deliveries, hangar rental rates) that we believe may provide early indications of conditions that may affect the level of demand for new leases and our lease portfolio.

Risk Factor s—

Risks Related to our Business and Operations ” for more information about the risks related to our tenants and our lease payments.

Operating Expense

One of our largest expenses are the lease payments payable under our ground leases.

For the years ended December 31, 2022 and 2021, our operating expense related to ground leases was $3.7 million and $3.7 million, respectively.

As we enter into new ground leases at new airport sites, our payments to airport landlords will continue to increase into the future.

If airport landlords increase the per acre cost of the ground lease of our target campuses, the operating margins at potential target developments may be impacted negatively.

Interest Expense

Economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs.

We expect to issue additional debt to finance future site developments and higher interest rates would impact our overall economic performance.

In addition, we are subject to credit spreads demanded by fixed income investors and bank lenders.

As a non-rated issuer, increases in general of credit spreads in the market, or for us, may result in a higher cost of borrowing in the future.

We intend to access the bond market on an opportunistic basis.

In addition, we may hedge against rising benchmark interest rates by entering into hedging strategies with high quality counterparties.

General and Administrative Expenses

The general and administrative expenses reflected in our statement of operations are reflective of the professional, legal and consulting fees, payroll costs, and other general and administrative expenses, including those necessary to support our business as a public company such as expenses associated with corporate governance, SEC reporting, and other compliance matters. While we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies, economies of scale, insourcing of job functions, and cost control measures.

Construction Material Costs and Labor

When constructing our HBS hangar campuses, we use various materials and components.

We generally contract for our materials and labor under guaranteed maximum price contracts upon receipt of building permits. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on an HBS hangar campus and the time it is completed.

Typically, the materials and most of the components used to construct our HBS hangar campuses are readily available in the United States.

In addition, the majority of our materials are supplied to us by our contractors and is included in the price of our contract with such contractors.

We continue to monitor the supply markets to achieve the best prices available.

Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor. We believe that recent inflationary pressures and market conditions will lead to continued increases in construction costs as well as market rental rates for hangars within our HBS hangar campus development projects.

However, there can be no assurance that we will be able to increase the lease rates for the hangars within our HBS hangar campuses to absorb these increased costs and/or delays, if at all.

We intend to continue to aggressively take action to mitigate these inflationary pressures, reduce construction costs, and shorten development schedules, both in the near term at our APA Phase I, DVT Phase I, and ADS Phase I development projects, and in the long term at future projects.

We structure our guaranteed maximum price construction contracts with shared savings clauses to incentivize the general contractors to reduce construction costs.

At our SGR Phase I and BNA Phase II development projects, our total construction costs were lower than both our original pricing estimate and the project’s contracted guaranteed maximum price.

In July 2022, we entered an exclusive strategic vendor partnership with a metal building and hangar door manufacturer that we expect to result in a reduction in the cost of the metal building and hangar door components at all future HBS hangar campuses.

As our strategic partnership grows, we expect this vertical integration will enable us to deliver metal buildings to each development site in shorter timeframes, which we believe will reduce the overall construction duration of each development project.

No assurance can be given that our cost mitigation strategies will be successful, the costs of our projects will not exceed budgets or the guaranteed maximum price for such projects, or that the completion will not be delayed beyond the projected completion dates.

Current Capital Requirements and Future Expenditures for Expansion

We previously funded SHC with over $200 million to fund the two phases at each of our five ground leased airport locations.

These construction funds and reserves are held at the bondholder trustee.

We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects.

We exercised this ability and received the requisite approvals and reports in March 2023 with respect to our ADS Phase I development project.

We consummated the Yellowstone Transaction on January 25, 2022, to raise additional equity capital to, along with potential future debt and further equity issuances, begin to fund additional airport campuses and reach up to 20 airport campuses over the next several years.

On average, each future campus is anticipated to be composed of an average of 10-20 hangars and is expected to cost approximately $55 million per campus, with 60% or more to be funded with additional public activity bonds.

All these future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites.

The cumulative 20 airport site business plan is estimated to cost approximately $1.2 billion, with approximately 65% to 75% anticipated from long-term private activity bonds and the balance with equity or equity linked financing.

The equity portion of this business plan has been partially funded upon the closing of the Yellowstone Transaction, which included an additional $45 million equity investment from Boston Omaha through the BOC PIPE. 

Our ability to raise additional equity and/or debt financing will be subject to a number of risks, including our ability to obtain financing upon reasonable terms, if at all, costs of construction, delays in constructing new facilities, operating results, and other risk factors. In the event that we are unable to obtain additional financing, we may be required to raise additional equity capital, creating additional dilution to existing stockholders.

There can be no assurance that we would be successful in raising such additional equity capital on favorable terms, if at all. 

Even if we can obtain such additional equity financing if needed, there can be no assurance that we would be successful in raising such additional financing on favorable terms, if at all.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and expenses during the periods reported.

Actual results could materially differ from those estimates.

We have identified the following as our critical accounting policies:

Cost of Construction

Cost of construction on the consolidated balance sheets is carried at cost.

The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use.

Costs are capitalized once the construction of a specific capital project is probable.

Construction labor and other direct costs of construction are capitalized.

Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized.

We allocate a portion of our internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas.

Interest costs on the debt used to fund the capital projects are also capitalized until the capital project is completed.

Once a capital project is complete, the cost of the capital project is reclassified to Constructed Assets on the accompanying balance sheet and we begin to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms.

We account for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases.

We determine whether a contract contains a lease at the inception of the contract.

ASC Topic 842 requires lessees to recognize operating lease liabilities and right-of-use (“ROU”) assets for all leases with terms of more than 12 months on the consolidated balance sheets.

We have made an accounting policy election that will keep leases with an initial term of 12 months or less off our consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

When management determines that it is reasonably certain that we will exercise our options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and operating lease liability balances.

We also have tenant leases and account for those leases in accordance with the lessor guidance under ASC Topic 842.

We have lease agreements with lease and non-lease components;

we have elected the accounting policy to not separate lease and non-lease components for all underlying asset classes.

We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations. 

Revenue Recognition

We lease hangar facilities that we construct to third parties.

The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term.

Some of the leases contain options to terminate the lease by either party with given notice.

There are no options given to the lessee to purchase the underlying assets.

Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease and (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the common area maintenance and operating expenses of the property and are recognized in the same period as the expenses are incurred.

The Company evaluates the collectability of tenant receivables for payments required under the lease agreements.

If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including security deposit amounts held, as a current period adjustment to rental revenue.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining incentive compensation expense and equity instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities.

Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Note 2 — 

Basis of Presentation and Significant Accounting Policies ”in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.

Results of Operations

Prior to the completion of the Business Combination on January 25, 2022, we neither engaged in any operations nor generated any revenues to date.

Our only activities from inception to December 31, 2021 were organizational activities, those necessary to prepare for the IPO, and identifying a target company for a Business Combination and the completion of the Business Combination.

We expect to generate non-operating income in the form of interest income on cash and marketable securities held after the IPO.

For the year ended December 31, 2021, and for the period from August 25, 2020 (date of inception) through December 31, 2020, we had net income/(loss) of $2,946,919 and 

($3,024,804), respectively.

 We recognized $6,095,170 and ($2,070,328) of income/(loss) related to the change in fair value of our warrants liabilities for the calendar year ended December 31, 2021 and for the period from August 25, 2020 (date of inception) through December 31, 2020, respectively.

Year ended December 31, 2022 Compared to the Year ended December 31, 2021

The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands). 

December 31, 2022

December 31, 2021

Rental revenue

Total revenue

Loss on impairment of long-lived assets

General and administrative

Total expenses

Other (income) expense:

Interest expense, net of capitalized interest

Other (income) expense

Unrealized (gain) loss on warrants

Loss on extinguishment of note payable to related party

Total other (income) expense

Revenues for the year ended December 31, 2022 were approximately $1.8 million, compared to approximately $1.6 million for the year ended December 31, 2021.

The 17% increase primarily resulted from additional tenant leases commencing at SGR during the second and third quarters of 2022 and BNA during late 2022.

Operating Expenses

Operating expenses increased approximately $0.6 million, or 13%, from approximately $4.5 million for the year ended December 31, 2021 to approximately $5.0 million for the year ended December 31, 2022.

This increase was primarily driven by an approximately $0.4 million increase in salaries, wages, and benefits associated with our campus personnel.

The increase was reflective of a headcount increase at BNA associated with the opening of the BNA campus in the three months ended December 31, 2022, an increase at OPF as we prepare to commence operations in the three months ending March 31, 2023, and a headcount increase at SGR to accommodate increased tenant activity.

Repair and maintenance expense associated with our hangars and related ground service equipment increased approximately $0.1 million, primarily driven by increased operations at our BNA and SGR campuses. 

Depreciation Expense

Depreciation increased approximately $0.1 million, or 18%, for the year ended December 31, 2022, as compared to the year ended December 31, 2021.

The increase reflects the opening of our BNA campus during the three months ended December 31, 2022 and the placement of additional ground support equipment into service throughout 2022.

General and Administrative Expenses

For the years ended December 31, 2022, and 2021, general and administrative expenses were approximately $14.7 million and approximately $8.7 million, respectively.

The approximately $6.0 million increase was primarily driven by an approximately $2.5 million increase in salaries, wages, and benefits, which reflects an increase in full-time and contracted employees. The increase also reflects the implementation of stock and cash incentive compensation programs instituted to attract and retain employees.

Other administrative expenses increased approximately $2.2 million driven primarily by insurance, franchise taxes, and computer and software expenses.

Marketing and pursuit costs increased approximately $0.6 million in the year ended December 31, 2022, compared to the year ended December 31, 2021, reflecting our growth strategy in securing airport site acquisitions and potential tenants.

Professional fees increased approximately $0.7 million due to an increase in legal, accounting, and consulting costs as compared to the prior year primarily as a result of becoming a public company.

Other (Income) Expenses

Other (income) expenses increased from approximately $1.4 million of other expense to approximately $5.2 million of other income for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

This increase was primarily due to an approximately $5.1 million mark-to-market gain of the outstanding warrants at December 31, 2022.

These warrants were issued by YAC as part of its initial public offering.

As a result, the warrants were not reflected in Sky’s financial statements for the Year ended December 31, 2021.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund the construction of new assets, fund working capital and other general business needs.

Our primary sources of cash include the issuance of equity and debt securities and operating cash flows.

Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding our operations and paying accrued expenses.

Yellowstone did not have any long-term contractual obligations as of December 31, 2021.

We believe that following the Business Combination, as a publicly traded company, we will have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities.

However, as a new public company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms.

Our primary sources of cash include the potential issuance of equity and debt securities and rental payments from tenants.

Construction Material Costs and Labor ”) funding for operations, and paying accrued expenses. 

We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional private activity bonds and other debt and the issuance of additional equity securities.

However, as a new publicly-traded company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms.

Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders.

Our ability to access the equity and debt capital markets will depend on multiple factors as well, including general market conditions for real estate companies, our degree of leverage, the trading price of our common stock and market perceptions about our company.

Yellowstone Activity and Business Combination

The registration statement for our IPO was declared effective on October 21, 2020.

On October 26, 2020, we consummated our IPO of 12,500,000 Units, at $10.00 per Unit, generating gross proceeds of $125.0 million, and incurring offering costs of approximately $7.3 million (including $6.9 million in underwriters' fees).

The underwriters were granted a 45-day option from the October 21, 2020 IPO to purchase up to 1,875,000 additional Units to cover over-allotments, if any, at $10.00 per Unit. 

On December 1, 2020, the underwriters' over-allotment option was exercised resulting in the purchase of an additional 1,098,898 Units. 

Simultaneously with the closing of the IPO, we consummated the private placement of 7,500,000 Private Placement Warrants to our sponsor, each exercisable to purchase one share of Class A common stock at $11.50 per share, at a price of $1.00 per Private Placement Warrant, generating gross proceeds to us of $7.5 million.

In connection with the partial exercise of the underwriter's over-allotment option, our sponsor purchased an additional 219,779 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, generating additional gross proceeds of $219,779.

Upon the closing of the IPO, $127,500,000 ($10.20 per Unit) of the net proceeds of the sale of the Units in the IPO, including proceeds of the sale of the private placement warrants, were placed in a trust account located in the United States at JP Morgan Chase Bank, N.A.

with Continental Stock Transfer & Trust Company acting as trustee, and are invested in U.S.

government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by us (or our management), until the earlier of:

(i) the completion of a Business Combination and (ii) the distribution of the funds in the trust account to our stockholders, as described below.

Upon the closing of the underwriter's over-allotment option, an additional $11,208,760 in proceeds from the exercise of the over-allotment and the sale of the additional private placement warrants were placed in the trust account, resulting in total funds held in the trust account of $138,716,226, inclusive of earned interest on investments held in the trust account.

On September 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $1,000,000 to cover expenses related to the Proposed Business Combination pursuant to a promissory note (the “Note”).

This loan bears interest at the Federal Short Term Rate published pursuant to Section 1274(d) of the Internal Revenue Code, compounded annually. 

The loan is payable on the earlier of the date on which the Company consummates its Business Combination or the date that the Company’s winding up is effective. 

The principal balance, together with all accrued interest thereon, may be prepaid at any time at the election of the Company.

As of December 31, 2021, there was $1,000,000 outstanding under the Note.

The Note was fully repaid in connection with the Business Combination.

As of December 31, 2021, we had assets held in the trust account of $138,760,121 consisting of $69,378,000 in U.S.

treasury securities with a maturity of 185 days or less as well as $69,382,121 of money market funds .

Investment income on the trust account may be used by us to pay taxes.

Through December 31, 2021, we did not withdraw any funds from the investment income on the trust account. In addition, $114,626 of cash was held outside of the trust account and is available for working capital purposes as of December 31, 2021.

At the closing of the Business Combination, we received an aggregate of $46 million of net proceeds to us, consisting primarily of the BOC PIPE, and the amount held in the Yellowstone trust account, net of redemptions and transaction costs, including $4,759,615 paid to the underwriters of the Yellowstone IPO as a deferred underwriting commission.

Following the Business Combination, we had cash and cash equivalents of approximately $53.2 million and restricted cash and cash equivalents of approximately $197.1 million.

For the year ended December 31, 2021, and for the period from August 25, 2020 (date of inception) through December 31, 2020, cash used in operating activities was $1,965,292 and $708,213, respectively, consisting of formation and operating costs. 

Our cash deposits may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and the majority are maintained with a major financial institution with reputable credit.

Our restricted cash is held in trust at a major financial institution pursuant to the Series 2021 PABs indenture.

We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity.

Our portfolio of investments and restricted investments is composed entirely of U.S.

Treasury securities as of December 31, 2022.

The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of December 31, 2022 and 2021 (in thousands):

December 31, 2022

December 31, 2021

Cash and cash equivalents

Restricted cash

Restricted investments

Total cash, restricted cash, investments, and restricted investments

Common Stock Purchase Agreement

On August 18, 2022, we entered into the Stock Purchase Agreement with B.

Pursuant to the Stock Purchase Agreement, we have the right, in our sole discretion, to sell to B.

Riley up to 10 million shares of our Class A Common Stock at 97% of the volume weighted average price of our Class A Common Stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement.

Sales and timing of any sales of Class A Common Stock are solely at our election, and we are under no obligation to sell any securities to B.

Riley under the Purchase Agreement.

As consideration for B.

Riley’s commitment to purchase shares of our Class A Common Stock, we have issued 25,000 shares of our Class A Common Stock to B.

Riley as initial commitment shares and may issue up to an aggregate of 75,000 shares of our Class A Common Stock to B.

Riley as additional commitment shares if certain conditions are met.

As of December 31, 2022, we have sold no shares of our Class A Common Stock to B.

Riley pursuant to the Stock Purchase Agreement. See “

Note 10 

— 

Equity and Redeemable Equity ”

in the Notes to Consolidated Financial Statements for additional information regarding the Stock Purchase Agreement.

Equity Financing

On the Closing Date, we completed the Yellowstone Transaction, Yellowstone changed its name to Sky Harbour Group Corporation, and Sky restructured its capitalization, issuing its Sky Common Units to the Company.

As a result of the Yellowstone Transaction, the Sky Common Units that Sky issued to BOC YAC in respect of its Series B Preferred Units were converted into 5,500,000 shares of the Company’s Class A Common Stock and holders of Sky Common Units received one share of the Company’s Class B Common Stock for each Common Unit.

As consideration for the issuance of Sky Common Units to the Company, Yellowstone contributed approximately $48 million of net proceeds to us, consisting primarily of the BOC PIPE, and the amount held in the Yellowstone trust account, net of redemptions and transaction costs.

Private Activity Bonds

On September 14, 2021, a subsidiary of Sky completed an issuance through the Public Finance Authority (Wisconsin) of $166,340,000 of Senior Special Facility Revenue Bonds (Aviation Facilities Project), Series 2021 (the “PABs”).

The PABs are comprised of three maturities:

$21,085,000 bearing interest at 4.00%, due July 1, 2036;

$30,435,000 bearing interest at 4.00%, due July 1, 2041;

and $114,820,000 bearing interest at 4.25%, due July 1, 2054.

The Series 2021 Bond that has a maturity date of July 1, 2036 was issued at a premium, and Sky received bond proceeds that were $249,436 above its face value.

The net proceeds from the issuance of the PABs proceeds are being used to (a) finance or refinance the construction of various aviation facilities consisting of general aviation aircraft hangars and storage facilities located and to be located on the SGR site, the OPF site, the BNA site, the APA site, and the DVT site;

(b) fund debt service and other operating expenses such as ground lease expense during the initial construction period;

On September 14, 2021, SHC completed an issuance through the Public Finance Authority (Wisconsin) of $166.3 million of Series 2021 PABs.

The Series 2021 PABs are comprised of three maturities:

$21.1 million bearing interest at 4.00%, due July 1, 2036;

$30.4 million bearing interest at 4.00%, due July 1, 2041;

and $114.8 million bearing interest at 4.25%, due July 1, 2054.

The Series 2021 PAB that has a maturity date of July 1, 2036 was issued at a premium, and Sky received bond proceeds that were $0.2 million above its face value.

The net proceeds from the issuance of the Series PABs proceeds are being used to (a) finance or refinance the construction of various aviation facilities consisting of general aviation aircraft hangars and storage facilities located and to be located on the SGR site, the OPF site, the BNA site, the APA site, the DVT site, and following our March 2023 election to reallocate a portion of the net proceeds, the ADS site; (b) fund debt service and other operating expenses such as ground lease expense during the initial construction period;

and (d) pay certain costs of issuance related to the PABs.

and (d) pay certain costs of issuance related to the Series PABs.

Debt Covenants

The PABs contain financial and non-financial covenants, including a debt service coverage ratio, a restricted payments test and limitations on the sale, lease, or distribution of assets.

The Series 2021 PABs contain financial and non-financial covenants, including a debt service coverage ratio, a restricted payments test and limitations on the sale, lease, or distribution of assets.

To the extent that SHC does not comply with these covenants, an event of default or cross-default may occur under one or more agreements, and we or our subsidiaries may be restricted in our ability to pay dividends, issue new debt or access our leased facilities.

The PABs are collateralized on a joint and several basis with the property and revenues of all SHC subsidiaries and their assets financed or to be financed from the proceeds of the PABs.

Covenants in the PABs require SHC to maintain a debt service coverage ratio (as defined in the relevant documents) of at least 1.25 for each applicable test period, commencing with the quarter ending December 31, 2024.

The PABs are subject to a Continuing Disclosure Agreement whereby SHC is obligated to provide electronic copies of (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC to the Municipal Securities Rulemaking Board.

The Series 2021 PABs are collateralized on a joint and several basis with the property and revenues of all SHC subsidiaries and their assets financed or to be financed from the proceeds of the Series 2021 PABs.

Covenants in the Series 2021 PABs require SHC to maintain a debt service coverage ratio (as defined in the relevant documents) of at least 1.25 for each applicable test period, commencing with the quarter ending December 31, 2024.

The Series 2021 PABs are subject to a Continuing Disclosure Agreement whereby SHC is obligated to provide electronic copies of (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC to the Municipal Securities Rulemaking Board.

As of December 31, 2022, we were in compliance with all debt covenants.

Lease Commitments

The table below sets forth certain information with respect to Sky’s future minimum lease payments required under operating leases as of December 31, 2021 (all of which were assumed by us in connection with the Business Combination):

The table below sets forth certain information with respect to our future minimum lease payments required under operating leases as of December 31, 2022 (in thousands):

Total lease payments

1 unchanged sentence

Contractual Obligations

The following table sets forth the contractual obligations of Sky as of December 31, 2021 (dollars in thousands):

year and less

The following table sets forth our contractual obligations as of December 31, 2022 (in thousands):

Principal Payments of Long-Term Indebtedness (1)

1 unchanged sentence

Lease Commitments (3)

Interest payments due on the Series 2021 PABs is held in reserve as restricted cash for the first three years.

Critical Accounting Policies

Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:

Net Loss Per Common Share  

Net (loss) income per share of common stock is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period.

We apply the two-class method in calculating earnings per share.

Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

As of December 31, 2021 and December 31, 2020, we had outstanding warrants to purchase up to 14,519,228 shares of Class A common stock.

The weighted average of these shares was excluded from the calculation of diluted net (loss) income per share of common stock since the exercise of the warrants is contingent upon the occurrence of future events.

As of December 31, 2021, we did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into shares of common stock and then share in our earnings.

As a result, diluted net (loss) income per common share is the same as basic net (loss) income per common share for the periods presented.

Redeemable Shares of Class A Common Stock

All of the 13,598,898 shares of Class A common stock sold as parts of the Units in the Public Offering contain a redemption feature.

In accordance with the Accounting Standards Codification 480-10-S99-3A (“ASC 480”), “Classification and Measurement of Redeemable Securities”, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity.

Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480.

The Company classifies all shares of Class A common stock as redeemable.

Warrants Liability

We account for the warrants in accordance with the guidance contained in Accounting Standards Codification 815 (“ASC 815”), “Derivatives and Hedging”, under which the warrants do not meet the criteria for equity treatment and must be recorded as derivative liabilities.

Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until the warrants are exercised, and any change in fair value is recognized in our statement of operations.

The fair value of the Private Placement Warrants and the Public Warrants issued in connection with the Public Offering have been measured based on the listed market price of such Warrants.

Recently issued accounting pronouncements not yet adopted

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements based on current operations of the Company.

The impact of any recently issued accounting standards will be re-evaluated on a regular basis or if a Business Combination is completed where the impact could be material.

 Consists of contractual principal payments on our Series 2021 PABs.

Note 8 —

Bonds payable, Loans payable and interest ”

in the Notes to Consolidated Financial Statements for additional information regarding the Series 2021 PABs.

 Following the issuance of the Series 2021 PABs, all of our indebtedness is now fixed rate debt.

Interest payments for the first three years on the Series 2021 PABs are held in reserve as restricted cash and restricted investments.

Note 8 —

Bonds payable, Loans payable and interest ”

in the Notes to Consolidated Financial Statements for additional information regarding the Series 2021 PABs.

 The Company’s ground leases expire between 2049 and 2097, which include all lease extension options available to the Company.

Note 7 —

Leases ”

in the Notes to Consolidated Financial Statements for additional information regarding our lease commitments.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements.

Historical Cash Flows

The following table summarizes our sources and uses of cash for the Year ended December 31, 2022 and 2021 (in thousands):

December 31, 2022

December 31, 2021

Cash and restricted cash at beginning of period

Net cash used in operating activities

Cash used in investing activities

Net cash provided by financing activities

Cash and restricted cash at end of period

Operating Activities

Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business.

Included in net cash provided by operations are certain non-recurring legal, accounting, and consulting costs incurred for up to four quarters as a result of becoming a public company and a one-time outflow associated with the purchase of a leasehold interest at OPF. Our working capital consists primarily of cash, receivables from tenants, prepaid expenses, accounts payable, accrued compensation, accrued other expenses, and lease liabilities.

The timing of collection of our tenant receivables, and the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

Net cash used in operating activities was $27.5 million for the year ended December 31, 2022, compared to $6.6 million for the same period in 2021.

The $20.9 million increase in cash used in operating activities was primarily attributable to the $9.6 million of initial direct costs associated with the purchase of our former landlord's leasehold interest at OPF.

The increase was also partially attributable to a $5.0 million increase in net loss, net of non-cash adjustments, and a $6.2 decrease in working capital. The increase in net loss and changes in working capital were primarily driven by general and administrative expenses incurred in the expansion of our business, including transaction-related expenses and other expenses related to corporate governance.

Investing Activities

Our primary investing activities have consisted of payments related to the cost of construction at our various HBS hangar campus development projects and investment in U.S.

Treasury Securities.

As our business expands, we expect to continue to invest in our current and anticipated future portfolio of HBS development projects.

Cash used in investing activities was $187.9 million for the year ended December 31, 2022, compared to $16.0 million for the same period in 2021.

The increase of $171.9 million in cash used in investing activities was driven primarily by $193.8 million of purchases of held-to-maturity U.S.

Treasury securities during the first and third quarters of 2022, the $30.0 million purchase of available-for-sale U.S.

Treasury securities during the second quarter, and a $29.1 million increase in payments for costs of construction due to the Company’s ongoing construction projects at BNA, OPF, APA, and DVT.

These increases were offset by proceeds of $79.1 million received at maturity of certain of the Company’s restricted investments.

Financing Activities

Our primary financing activities have consisted of capital raised to fund the growth of our business and proceeds from debt obligations incurred to finance our HBS hangar campus development projects.

We expect to raise additional equity capital and issue additional indebtedness as our business grows.

Net cash provided by financing activities was $52.8 million for the year ended December 31, 2022, compared to $226.4 million for the same period in 2021.

The $173.6 million decrease in net cash provided by financing activities was primarily driven by $166.5 million of bond proceeds received during the third quarter of 2021 due to the issuance of the Series 2021 PABs, and $55.0 million of proceeds received from the issuance of the Sky Series B Preferred Units during the third quarter of 2021, and $30.0 million of proceeds from the issuance of Series A Preferred Units in the first quarter of 2021.

These decreases were offset by $45.0 million of proceeds received from the issuance of the BOC PIPE and $15.7 million of gross proceeds from the Yellowstone trust account, both occurring in the first quarter of 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity